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The Congress-led United Progressive Alliance (UPA) is likely to take a major decision of increasing the retirement age of Central government employees by two years, from 60 to 62 this week. This would be applicable from March 1.

It would be one of the major decisions to be taken by the Cabinet before the model code of conduct for the general elections kicks in. In the Thursday meeting, the Cabinet is also likely to recommend dates for the elections. These could be notified on March 5.

"The government may clear the increase in age this week," said a source. It is likely to be a part of the terms of reference of the Seventh Pay Commission, expected to file its report in 2017. The panel, however, can recommend an interim relief through the move.

The increase in retirement age would be happening after 15 years. In 1998, it was increased to 60 from 58 following implementation of the Fifth Pay Commission. Experts said it would defer payment of retirement benefits. However, sources confirmed this would not be applicable for employees retiring on February 28.

The cabinet is expected to discuss a proposal to increase the dearness allowance by 10 per cent from January 1, to make it 100 per cent and merge 50 per cent of the increased dearness allowance with basic pay. The terms and conditions of the panel include a proposal to merge 50 per cent of dearness allowance with basic pay.

The move to increase the retirement age may pressure the states to follow. The department of personnel and training was working on the proposal for quite some time. The Budget estimate on the pension outgo for 2014-15 is Rs 80,982 crore, 0.6 per cent of the gross domestic product.